Empirical Study of Effects of Price Adjustment Clauses (PACs) on Highway Construction Bid

Volatility in price of critical materials used in transportation projects, such as asphalt cement, leads to considerable uncertainty about project cost. This uncertainty can lead to price speculation and inflated bid prices submitted by highway contractors to protect against possible price increases. One of the most common risk sharing strategies widely used by transportation agencies is price adjustment clauses (PAC) that divide potential upside and downside risk of material prices between contractors and owners. However, it is not clear whether offering PAC reduces risk premium of bids submitted by highway contractors. The research objective of this paper is to assess the effect of offering PAC for asphalt cement on submitted bids of one of the most common asphalt mixture line items. Data on 1520 highway projects consisting of the asphalt line item bidded out in the state of Georgia from 1998 to 2013 were collected to analyze the effects of PAC on bid prices. Multivariate regression analysis was conducted to evaluate the effect of several factors, such as project size, number of bidders, asphalt cement price, and availability of PAC on unit price bids material prices submitted by highway contractors. It was found that eligibility for PAC is not a statistically significant explanatory variable to explain the variation of submitted bid prices for the asphalt mixture items.

• Record URL:
  • https://doi.org/10.1061/9780784413517.112
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/isbn/9780784413517
• Supplemental Notes:
  • © 2014 American Society of Civil Engineers.
• Corporate Authors:

  American Society of Civil Engineers

  1801 Alexander Bell Drive
  Reston, VA  United States  20191-4400
• Authors:
  • Ilbeigi, Mohammad
  • Ashuri, Baabak
  • Shayegh, Soheil
• Conference:
  • Construction Research Congress 2014
  • Location: Atlanta Georgia, United States
  • Date: 2014-5-19 to 2014-5-21
• Publication Date: 2014-5

Language

• English

Media Info

• Media Type: Web
• Features: References;
• Pagination: pp 1093-1102
• Monograph Title: Construction Research Congress 2014: Construction in a Global Network

Subject/Index Terms

• TRT Terms: Asphalt mixtures; Bids; Cement; Contractors; Prices; Regression analysis; Road construction; Uncertainty
• Uncontrolled Terms: Price adjustment
• Geographic Terms: Georgia
• Subject Areas: Construction; Finance; Highways; I50: Construction and Supervision of Construction;

Filing Info

• Accession Number: 01525800
• Record Type: Publication
• ISBN: 9780784413517
• Files: TRIS, ASCE
• Created Date: May 28 2014 3:21PM